Late payment of insurance claims - Third Reading of the Enterprise Bill
In our two previous Briefing Notes we have discussed the detailed provisions of the Enterprise Bill 2015 that relate to the late payment of insurance claims. If it is enacted the Enterprise Bill will give policyholders a right to claim damages from their insurers for late payment of claims.
Our last Briefing Note was issued during the Enterprise Bill’s Report stage in the House of Lords. Since that Briefing Note the Enterprise Bill has received its Third Reading in the House of Lords (on 15 December 2015) and has now moved to the House of Commons, having received its First Reading on 16 December 2015.
During its Third Reading debate in the House of Lords, Baroness Neville-Rolfe, speaking for the Government, noted that: “The overarching policy objective of [the Enterprise Bill] is to provide a strong incentive for insurers to pay on time. It is hoped that the provisions will speed up settlement of insurance claims generally, with day-to-day benefits for policyholders.”
During the Third Reading the Enterprise Bill was amended to include a provision that actions for damages for late payment of insurance claims may not be brought more than one year after the insurer has paid all sums that are due to the insured in respect of the claim. This additional time limit for an action for damages for late payment is proposed to be introduced by way of insertion of a new section (section 5A) into the Limitation Act 1980.
The effect of this provision will be that a late payment action will be barred by the expiry of whichever of the following periods ends the soonest:
the period of one year after payment of all sums that are due in respect of the insurance claim; or
the usual limitation period of six years from the date of breach by the insurer of the implied term as to payment within a reasonable time.
An insurer will have paid all sums that are due in respect of the insurance claim when it either pays the entire sum that is due to the insured, or when it makes a payment that “extinguishes” the insurer’s liability. The Explanatory Notes issued when the Bill was introduced into the House of Commons suggest that a payment that extinguishes the insurer’s liability might be, by way of example, “a payment in accordance with a court or arbitral award, or an amount agreed by the insurer and insured in a binding settlement agreement”.
Even with the addition of the one year period, some uncertainty will remain as to the precise date in any case by which proceedings have to be brought against insurers (in particular if there is a dispute between insurer and insured as to the claim). This in turn could be a point to be considered in any satellite litigation against professionals for failing to advance a claim against insurers.
One of the concerns that had been expressed during the Report stage of the Bill in the House of Lords (when a similar amendment had been discussed, but was ultimately withdrawn) was that the late payment provisions (as they then stood) would potentially require insurers to keep their books open and hold reserves in respect of possible late payment claims for an uncertain period of time, and that such requirement may also have an adverse impact on policyholders through increased premiums. The time limit of one year within which a claim for damages for late payment of claims must be brought is intended by the Government to be a balance between the interests of policyholders and insurers.
First Reading in the House of Commons
Following amendment on its Third Reading in the Lords the Enterprise Bill moved to the House of Commons and received its First Reading. A date for the Bill’s Second Reading has yet to be fixed.
DWF will continue to report on the progress of the Enterprise Bill.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.